SPX Credit Spread Trader

Quote from optioncoach:



I do not put the margin in anything. It works the other way around. The required margin, which is really a set aside is already in the closed-end funds, t-bills or cash. I can sell spreads against that without doing anything more. You do not have to place the margin amount in something to trade it. Better to already have it invested somewhere earning a return and then sell spreads against a portion of it. Brokers will allow you to margin 100% of the cash amount, 90/95% of the t-bill amount and 50% of the stock amount (i.e. closed-end funds). So my investments were already in closed-end funds and cash before I started selling the spreads.
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I wish all brokers would allow this. Interactive Brokers, unfortunately, does not.
 
Really? I am surprised that IB is like that but then again I have heard a lot of complaints about their approach to margin. OX and ToS have similar approaches.

Phil


Quote from smilingsynic:

I wish all brokers would allow this. Interactive Brokers, unfortunately, does not.
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Andy:

1) Well that is a good point so I would probably keep about 20% in cash. Also month to mont the CEFs would give off dividend income which would increase the cash position.

2) The returns from the spreads is not meant to compete with yield of T-bills or CEFs, it co-exists with it. If I can earn 4% on t-bills and 15% on spreads, then they combine for a nice return. Same with CEFs. The spreads are actually being used to enhance the return of the portfolio.

Phil

Quote from andysmith:

"If I only had $100k I would put it all in closed-end funds earning interest. That is my style so not everyone would agree. This way I could only sell up to 50% of acount in spreads and boost my return. The CEFs would provide about 7 - 10% when capital appreciation is factored in (got to diversify and pick them selectively) and then I could earn another 10 - 20% perhaps selling spreads for the year. Just my opinion. You could put all $100k in t-bills and still earn 15% a year selling spreads."

-- Phil, yes of course, this is a very subjective matter and to each his own. Your comments will not be misinterprested as advice, just your very personal opinion. Nevertheless, it is very helpful. Couple of follow on questions:

1) If you put 100% in CEFs or tbills, what happens if you need some cash (more than the credit your spread brought in) to roll your spread in order to get out of a jam?

2) The returns from the spreads eclipses the returns from tbill/CEFs, making the whole thing a bit topsy turvy. Why not leave all in cash and just write spreads?
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rdmeyan
Your strategy is a little different, short strike a bit "safer" and 15 points spread.
If needed, what kind of adjustments do you apply? Do you just close (buy) the spread at a certain TP or roll or something else?

Quote from rdemyan:

I couldn't resist. Got the following order filled as well today.

Oct SPX 1125/1140 at $0.60

That's it until we get near October expiration except to possibly put on the bear call sides for an IC.

I hope going beyond my usual 33% of the portfolio for credit spreads doesn't come back to haunt me.


:eek:
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ox fills for the 1125/1140 were pretty volatile near the close. i placed a 0.65 limit around 1p (et) it was almost filled twice with the b/a @ 0.6/1.2. near the end of the day 401p (et) i decided to shave a nickel. imagine my surprise when the mm gave me 0.7! i actually saw a b/a of .75/1.3 around 403p (et). maybe those humans took a nickel instead of giving me a dime. hmmm.

oh by the way,
also b and d.
options x 7yrs
newbie
 
10 and 15 point spreads are typical of what Coach does. I have both and generally prefer 10, but premiums have been lower the last few months.

Prior to the London bombing, I had made a lot of money on credit spreads for months with no adjustments required. At that time I had become cocky and was doing spreads with Google and a few others. The London bombing caused me to make adjustments with about a week left till expiration and coupled with some bad luck, I made a mess of it. Cost me quite a bit, but I'm still a firm believer in credit spreads.

After that experience I resolved to be a risk manager first and a profit taker second. One thing that you have to understand about spreads is that once you get near ATM, the losses can be about an order of magnitude or more than the credit you took in. I also learned that when I'm losing big money, I'm not as clear headed as I usually am. The idea with adjustments is that you make the adjustment before getting near ATM (I believe Coach typically recommends adjusting when the index price approaches within 15 points of a short strike on either side of the IC; although today he surprised me by mentioning 30 points in response to one of my other posts on the 1140/1125 bull put spread). However, IMHO it's more difficult to adjust the closer you get to expiration.

So for me going further OTM is safer, plus I should have the advantage of seeing what adjustments Coach makes before I need to make them. Also, I will now only do credit spreads on the SPX and other lumbering, slow-moving indices (right now it's only the SPX, but maybe the OEX in the future).

Christopher Smith at the OptionClub.com has prepared an excellent video on an actual adjustment to an SPX credit spread. He presents it in a very cool, level-headed fashion without emotion, which is exactly how you have to be when you make these adjustments. You have an adjustment plan in mind before you enter the trade and you stick to it. I believe the adjustment was made in late June or early July. I highly recommend you check it out. Goto www.theoptionclub.com, click on "SPX Iron Condor Chat session" link and then click on the link "06/26 Iron Condor Adjustment". Coach presented I think two chat sessions to that group.

Good Luck!




Quote from ckor30:

rdmeyan
Your strategy is a little different, short strike a bit "safer" and 15 points spread.
If needed, what kind of adjustments do you apply? Do you just close (buy) the spread at a certain TP or roll or something else?
More...
 
Just to elaborate further, I mentioned the 30 point range as a point to have a head's up simply because of your uneasiness with the position. I did not mean to imply that you should adjust at that point. Just that if you are having some worries then set up the fence further out to at least examine the market and see if any technical indicators are pointing to continued movement below you. It is like an initial eyes open stage.

Phil

Quote from rdemyan:

10 and 15 point spreads are typical of what Coach does. I have both and generally prefer 10, but premiums have been lower the last few months.

Prior to the London bombing, I had made a lot of money on credit spreads for months with no adjustments required. At that time I had become cocky and was doing spreads with Google and a few others. The London bombing caused me to make adjustments with about a week left till expiration and coupled with some bad luck, I made a mess of it. Cost me quite a bit, but I'm still a firm believer in credit spreads.

After that experience I resolved to be a risk manager first and a profit taker second. One thing that you have to understand about spreads is that once you get near ATM, the losses can be about an order of magnitude or more than the credit you took in. I also learned that when I'm losing big money, I'm not as clear headed as I usually am. The idea with adjustments is that you make the adjustment before getting near ATM (I believe Coach typically recommends adjusting when the index price approaches within 15 points of a short strike on either side of the IC; although today he surprised me by mentioning 30 points in response to one of my other posts on the 1140/1125 bull put spread). However, IMHO it's more difficult to adjust the closer you get to expiration.

So for me going further OTM is safer, plus I should have the advantage of seeing what adjustments Coach makes before I need to make them. Also, I will now only do credit spreads on the SPX and other lumbering, slow-moving indices (right now it's only the SPX, but maybe the OEX in the future).

Christopher Smith at the OptionClub.com has prepared an excellent video on an actual adjustment to an SPX credit spread. He presents it in a very cool, level-headed fashion without emotion, which is exactly how you have to be when you make these adjustments. You have an adjustment plan in mind before you enter the trade and you stick to it. I believe the adjustment was made in late June or early July. I highly recommend you check it out. Goto www.theoptionclub.com, click on "SPX Iron Condor Chat session" link and then click on the link "06/26 Iron Condor Adjustment". Coach presented I think two chat sessions to that group.

Good Luck!
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Basically when investing in income CEFs you want to be aware of which sectors you should be focusing on. In a rising rate environment, floating rate loan funds and short-term duration funds are the better choices over long-term bond funds. Insured munis are good too as they are less sensitive to rate changes but I would still recommend shorter duration funds. I have CEFs in preferred stock funds, commercial REITS, international and some high yield debt. You can do some research at www.etfconnect.com on CEFs.

Phil


Quote from gatorplease:

Coach.

Any recommendations on CEFs to check out?
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